The following is part of a blog series spotlighting the perspectives and experiences of CEOs and board members of financial institutions, as well as industry experts, who have participated in CFI’s Africa Board Fellowship program.

ABF Fellows group discussion. November 2016.

> Posted by Danielle Piskadlo, Director, CFI

Few countries have escaped socio-political unrest, conflict or periods of crisis. As the consequences of such events can be severe for both financial service providers and their customers, it behooves every board and CEO to consider how they might prepare themselves to respond when the political environment around them deteriorates.

One might think that with the explosion of new types of data and advanced analytics there would be an abundance of low-hanging fruit for financial service providers to feast on. While the excitement about the potential of non-traditional data may be justifiable, the reality is that the hard work of building the networks to derive value from such data is just getting underway. Just as the invention of the automobile required the development of roads, signage, lighting, laws and regulations, so too will data need its own groundwork before it can bring transformative change to the financial system and society at large.

Any change of this magnitude also requires large-scale collaboration to ensure that the infrastructure and standards put in place are broadly applicable across technologies, data types, industries and countries. As such, alongside the many in-house and bilateral initiatives afoot across various providers and markets, there needs to be a much more holistic and collaborative approach to developing data ecosystems that can align principles, practices and standards to facilitate the flow of data through value chains and across geographies.

In the era of digital credit, we need not just new laws, but also new mental models for responsible digital credit provision.

> By John Owens, CFI Fellow

As digital credit providers have grown exponentially over the past few years, and as digital products and models have proliferated, so too have concerns around consumer protection. In the recently published report, Responsible Digital Credit, I argue that ensuring that digital credit customers receive responsible treatment requires more than enhanced consumer protection laws and regulations. It also requires strong commitment from the digital credit industry. Finally, it needs consumers who are empowered to play a more proactive role in managing their digital credit responsibly. Read the rest of this entry »

With the weakening of institutional watchdogs and regulations for mortgage lending in the U.S., the future of consumer protection in financial services is jeopardized.

Can your skin color help predict whether you may be financially exploited in the United States? Unfortunately, even in 2018, the answer is still yes.

In February of this year, Wells Fargo was sued by the city of Sacramento, California for allegedly discriminating against black and Latino mortgage borrowers since 2004. The specific charge, raised against the country’s third-largest bank in terms of assets, was providing these clients with more expensive loans compared to those offered to white borrowers.

Across the country, in Baltimore, Maryland, a study that found that black homeowners were charged higher interest rates and disadvantaged at every stage in the borrowing process compared to similarly qualified white borrowers – even taking into account factors such as credit scores, income and down payments. Over the span of a 30-year loan, the researchers say, discrimination against black borrowers cost them an extra $14,904 each, compared with white borrowers.

Homeownership is one of the most important ways for working and middle class families to build generational wealth. According to the U.S. Census Bureau, 69 percent of a household’s net worth in America lies in the net equity in their home. And investigations have repeatedly shown that people of color pay a heftier price to achieve wealth than their white counterparts.

What are the economic implications of financially exploiting people of color in home ownership? More expensive mortgage loans translate into higher monthly payments, lower savings, and a higher risk of default and foreclosure. On a macro-level, consequences include a stagnant homeownership rate among people of color, a yawning (and growing) racial wealth gap, and continued institutional discrimination against people of color in the United States.

As a national consumer advocacy entity, the Consumer Financial Protection Bureau (CFBP) is designed to investigate claims of nefarious behavior among financial service providers and ensure that providers treat consumers fairly. However, its Office of Fair Lending and Equal Opportunity was stripped of its power earlier this year, with the removal from its mandate of oversight and enforcement. Commenting on the move, Lisa Donner, executive director of Americans for Financial Reform remarked, ‘‘These changes . . . threaten effective enforcement of civil rights laws, and increase the likelihood that people will continue to face discriminatory access and pricing as they navigate their economic lives.”

The burst of the U.S. housing bubble yielded the Great Recession, which spread throughout world. Its origins in reckless lending in the subprime market convinced many people involved in the financial sector that consumer protection was urgently needed. In response to this gap, the 2010 Dodd-Frank financial reform law was passed. However, the current administration has since rolled back banking regulations, making it harder to detect discriminatory mortgage lending practices. Signed in May 2018, the new Economic Growth, Regulatory Relief and Consumer Protection Act would exempt 85 percent of banks from reporting detailed information about mortgage loan applicants. This means it will be more difficult to identify systemic issues, conduct research about them, and respond with corrective action.

As borrowers of color in the U.S. continue to access credit with the goal of owning a home, and the steady deliberate weakening of institutional watchdogs and regulations continues, the future of consumer protection in financial services for all remains in jeopardy. As banks continue to backslide into more discriminatory and predatory practices towards people of color, we as consumers and advocates should continue to be aware of and vigilant about them.

Never before have issues of data privacy and security been more top of mind. In the United States this attention was on full display a few weeks ago when every media outlet was glued to Facebook’s CEO Mark Zuckerberg as he fielded questions from Congress on how his company handles, and has mishandled, user data.

Europe begins a new era for data protection today as the General Data Protection Regulation (GDPR) goes into effect, following its passage roughly two years ago. The law is being celebrated widely for its robust customer-centricity. The degree to which it succeeds, in Europe and globally, in enforcing a business environment that provides adequate safeguards for consumer data management remains to be seen. One thing is certain, however: it has the potential to change the way we all interact with businesses, from internet platforms to banks.

Two experiences with interest rate caps – in Kenya and Zambia – demonstrate the power of political forces to shape financial inclusion policies and may hold lessons for MSME lenders in other countries.

In a recent unpublished study, the Partnership for Responsible Financial Inclusion (formerly the Microfinance CEO Working Group) examined commonalities in the origins of interest rate caps in these two countries. In both cases, signs were clear that the general public was upset about the current state of loans and interest rates. Approaching elections increased the will among political leaders to make regulatory changes that would appeal to the public.

Last week, Mick Mulvaney, interim director of the U.S. Consumer Financial Protection Bureau (CFPB) said in reference to the CFPB’s consumer complaints database, “I don’t see anything in [the Dodd-Frank Act] that says I have to run a Yelp for financial services sponsored by the federal government. I don’t see anything in here that says that I have to make all of those [complaints] public.”

Mulvaney’s comments refer to the complaints database CFPB has been running for several years, which allows anyone to view, sort, and filter complaints submitted by customers regarding their treatment by their financial service provider. Since the database was created, roughly 1.5 million complaints have been logged. This database has functioned as a tremendous resource for prospective customers who want to check out financial institutions, for analysts of consumer risks in the U.S. financial system, and for financial institutions who want to see how they stack up against others. Its publication may also induce financial service providers to be more vigilant in avoiding bad practices and handling customer complaints well.

On a daily basis, consumers fall victim to issues like lack of grievance redressal, misleading ads, and outright frauds and scams

In fewer than twenty years, our concept of a market has evolved from a strictly physical location of commercial activity, to also include intangible, real-time e-locations. Research shows that up to 12 percent of all global commercial transactions now take place on the Internet – within and between countries, often across multiple currencies, and with little or no physical contact between seller and consumer.

It’s not just social media. We need a fresh look at how financial data is protected, too.

Mark Zuckerberg defended Facebook’s handling of customer data yesterday before the U.S. Senate, and many of us at Accion and the Center for Financial Inclusion were riveted. Not that the testimony was especially compelling as television spectacle, but because the issues at stake are so important both for our own lives and for our work.

I did a quick scan of the staff here in our Washington, D.C. office, and would like to share some of their thoughts.

Organizations that collectively serve 80% of Australia’s population are working together to advance financial resilience

> Posted by Good Shepherd Microfinance

If financial inclusion is looked at as a problem of access, Australia is doing very well. Over 98 percent of the adult population has access to at least one financial service. By comparison, the average level across high-income countries is 91 percent, and the average across low-income countries is 28 percent, according to the Global Findex. But scratching the surface finds many people who are struggling with financial hardship.

3.3 million Australian adults (almost 18 percent of the population) lack access to financial products and services that are considered safe, affordable and appropriate for their needs, and 2.4 million experience severe financial vulnerability, based on research on financial resilience conducted by the Centre for Social Impact (CSI).

Recognizing that collaborative action is needed to improve financial inclusion and resilience for the millions of Australians who are left behind, 30 organizations have joined forces to co-design the Financial Inclusion Action Plan (FIAP) program. Led by Good Shepherd Microfinance on behalf of the Australian Government in partnership with EY and CSI, this program helps participating organizations (Trailblazers) understand their role in advancing financial inclusion and resilience, and take practical actions to realize this potential, for their own clients, employees, suppliers and community partners.

Founding Sponsor

Credit Suisse is a founding sponsor of the Center for Financial Inclusion. The Credit Suisse Group Foundation looks to its philanthropic partners to foster research, innovation and constructive dialogue in order to spread best practices and develop new solutions for financial inclusion.

Note

The views and opinions expressed on this blog, except where otherwise noted, are those of the authors and guest bloggers and do not necessarily reflect the views of the Center for Financial Inclusion or its affiliates.